Normative inference in efficient markets

This paper develops a non-parametric method to infer social preferences over policies from prices of securities when agents have non-stationary heterogeneous preferences. We allow for arbitrary efficient risk-sharing mechanisms, formal and informal, and consider a large class of policies. We present a condition on the distribution of aggregate wealth that is necessary and sufficient for the revelation of social preferences over a universal set of policies. We also provide a weaker condition that is sufficient for revelation of social preferences for an arbitrary finite collection of policies.

Unpublished version

Published version

@article{weretka2019normative, title={Normative inference in efficient markets}, author={Weretka, Marek}, journal={Economic Theory}, volume={68}, number={4}, pages={787--810}, year={2019}, }